Attorney Fee Deferral: Take Your Contingent Fee Across Years, Not in One Tax Bomb

Childs v. Commissioner, 103 T.C. 634 (1994), aff'd 89 F.3d 856 (11th Cir. 1996), is the controlling authority. The IRS has acquiesced. Done correctly and timely, the deferral is bulletproof.

How it works

1. Before settlement is fully papered, your fee agreement is restructured so the defendant (or settlement fund) directs payment of your fee to a qualified assignment company instead of you.
2. The assignment company uses the cash to purchase a fixed annuity from a major life carrier (Pacific Life, MetLife, Independent Life, USAA Life).
3. The carrier pays you over your chosen schedule — could be 5 years, 10 years, life-only, lump-then-monthly, or custom.
4. You recognize ordinary income only as payments arrive. No constructive receipt because you never had control of the fee in year one.

The key word is timing. The structuring must happen before you have a right to the fee. Once you've taken constructive receipt, the deferral is gone.

The math — $3M contingent fee, plaintiff attorney

The $540K California number is real and recurring. I've structured 7-figure fees for solo plaintiff attorneys, mass tort partners, and personal injury firms in California, Texas, New York, Florida, and a dozen other states. The federal §453-via-Childs deferral works identically; only the state-rate delta changes.

When the fee deferral fits

• Contingent fee $750K+ (carrier minimums; ideal $1.5M+)
• Pre-settlement structuring (must paper the structure before you have a right to the fee)
• Defendant or settlement administrator willing to direct payment to the assignment company (most plaintiff-side defendants in major cases routinely do this)
• You don't need the full fee at closing for an urgent business or personal use

When it doesn't

• Fee already paid to you or to your firm trust account (too late)
• Fee under $500K (math doesn't justify structuring)
• Fee will be split among many partners with conflicting schedules (each partner needs their own structure)
• Class-action mass tort fees with already-finalized distribution (sometimes structurable, often not)

Common situations I structure

• PI / mass tort solo or small firm — single big case ending
• MDL / class-action lead counsel — bellwether fees
• Employment lawyers — discrimination, wrongful termination settlements
• Securities litigation — opt-out class fees
• Wage and hour class — California PAGA, FLSA class fees
• Mesothelioma / product liability — large punitive damage components

How I work

Hans Goldstein. I structure attorney fee deferrals through carrier-appointed brokerage relationships with Pacific Life, MetLife, Independent Life, and USAA Life — all four licensed in all 50 states. I'm licensed in California (Insurance License #4322192) and work nationally on Childs structures.

Free 15-minute fit-check call. Bring your fee estimate, expected settlement date, defendant's counsel name, and target payment schedule. I model the lump-sum vs structured side-by-side. Carrier compensates the broker — not you.

Important timing note: If your case is close to settlement, call me before you sign the settlement agreement. The structure has to be in the settlement paperwork, not added after.

Frequently asked

Q: Does my client need to know? A: The defendant or settlement administrator needs to agree to direct your fee to the assignment company. Your client's net is unaffected. Whether you tell your client about the structure is between you and your fee agreement.

Q: Can I defer just part of the fee? A: Yes. Common structure: take 30-50% at closing for immediate needs, defer the rest. Optimizes tax bracket reduction.

Q: What if the defendant won't agree to direct payment? A: Defendants in most modern cases — especially institutional defendants — do this routinely. If yours won't, sometimes the settlement administrator can. Worst case, the deferral may not be available for that particular settlement.

Q: How does Childs work with state attorney fee splits? A: Childs is a federal authority. State income tax follows the federal treatment in nearly every state. State-specific quirks exist in a few states (e.g., California Code of Civil Procedure on attorney fee allocation in PAGA matters); we work through those case-by-case.

Q: Is this aggressive tax planning? A: No. It's a settled Tax Court + 11th Circuit precedent with IRS acquiescence. The mechanic — direct assignment of a future income obligation to an annuity — is the same mechanic the IRS has blessed for personal injury settlements under §104(a)(2) for decades.

Educational. Not tax or legal advice. Plaintiff attorneys: structure must be in the settlement paperwork before constructive receipt. Talk to me before signing.